Chips Are Down for VCs, Wall Street

SAN JOSE, Calif. — Twitter and other web companies may be back in the financial limelight, but semiconductor startups are still in the shadows. Venture capital funding, public offerings, and acquisitions fell in the chip industry in 2013, according to a new report, and a market watcher said the situation will likely worsen.

No IPO filings from semiconductor companies were reported in December, and there are no semiconductor companies awaiting an IPO pricing, the industry trade group's report said.

The number of mergers and acquisitions of entire companies fell from 59 in 2012 to only 38 in 2013. The largest deal in December -- and the second-largest deal of 2013 -- was Avago Technologies' agreement to acquire LSI Corp. for $6.6 billion.

Steep decline in VC funding for chip startups. Source: GSA

Dan T. Niles, chief investment officer at the hedge fund manager AlphaOne Capital Partners LLC (who was not involved in compiling the report), told us the gloom is likely to deepen. The increasing costs of semiconductor process technology, rising design complexity, and a relatively slow-growing market for chips will depress the financials for the foreseeable future.

"At the end of the day, global demand is still pretty meager, and more importantly for semiconductors, you have slowing in Moore's Law, combined with ultra-small geometries, creating a cost prohibitive environment," Niles said. "To get improvements in products, you need to spend more money, because the laws of physics are working against you."